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Marketing: is managementall that there is?

Roger A. LaytonSchool of Marketing, University of New South Wales, Sydney, Australia

Abstract

Purpose – Dixon recently commented that 50 years ago “marketing management and planning waspart of marketing theory, today it seems to be all there is.” There is now a growing fragmentation of marketing thought, and a lack of marketing relevance to critical social and economic questions, thatis of increasing concern to both internal and external critics. Thepurpose of this paper is to explorebriefly theevolution of marketing thought over the last 100 years and to suggest a better response to the critics.

Design/methodology/approach – The paper comprises an historical review of the development of marketing as a discipline that could lead to a reconceptualization of the field.

Findings – Adam Smith emphasised both scale and diversity in markets. However, it was theeconomics of scale that caught the attention of economists and then of marketing specialists.This incomplete view of Smith limited the scope of marketing thought to single or related products.However, Smith’s emphasis on diversity leads, logically and inevitably, to the development of theconcept of a marketing system. A setof propositions are then suggested that lead to a generalised theoryof marketing based on the marketing system concept.

Originality/value – This approach holds promise of resolving the concerns of both the internal andexternal critics of marketing, opening the door to a fresh, relevant interpretation of marketing thoughtthat might address the concerns expressed by Dixon.

Keywords Marketing systems, Marketing theory, Marketing management

Paper type Conceptual paper

In a Wharton Alumni Magazine article, the chairman of the marketing department states“This is a department that focuses on translating state-of-the art, cutting-edge research intodecision tools that managers can use to make better decisions” [. . .] Fifty years ago one wouldwant to consider what is meant by “better”decisions, and how “better” might be measured. Butthen marketing management and planning wasa part of marketing theory; today it seems to beall that there is (Dixon, 2010).

IntroductionFor some time now, marketing has been in the headlines, and for reasons that couldbetter have been avoided. The expectations, over 70 years ago, when Paul Mazur andMalcolm McNair suggested that the role of marketing was to create and deliver astandard of living; or just 50 years ago, when Drucker (1958, p. 252) argued that

“marketing [. . .

] is the process through which economy is integrated into society to servehuman needs”, have for the most part not been fulfilled. Instead, marketing is oftenportrayed as a driver of unwanted social and cultural change. Consequently, the criticsargue inter alia that marketing contributes to the destruction of long-standing culturalvalues and traditions, to consumption excesses leading amongst other ills to climatechange, and in a more immediate context to problems such as the growing trend towardsobesity and the recent global financial crisis, a crisis caused by the selling of inappropriate financial products to uninformed buyers.

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1755-750X.htm

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Journal of Historical Research in

Marketing

Vol. 3 No. 2, 2011

pp. 194-213

q Emerald Group Publishing Limited

1755-750X

DOI 10.1108/17557501111132145



Discontent with marketing is not limited to social critics. For many years, theintegrating theme of marketing as a business activity concerned with creating,communicating and delivering value to customers has underpinned rapid growth in thediscipline of marketing. This emphasis is now seen to be leading to growing

fragmentation in both research and in everyday practice. These trends can be seen in thegrowth of specialized sub-fields such as relationship marketing, quality management,service marketing, supply and value chain management, and the management of innovation. The same trends can also be seen in the drift of some traditional areas of interest such as macro/policy issues to specialized sub-groups and the study of strategyto the emergent field of strategic management. As Wilkie and Moore (2006, p. 226) note,“virtually every research area is now a stream running its own course and that there iscoming to be no real ‘mainstream’ of academic marketing thought any longer.”

To lend more urgency to the matter, in July 2009, the Journal of Marketing hadaGuestEditorial written by three leading academics (Reibstein et al., 2009, p. 1) that was titled“Is marketing academia losing its way?” They noted that:

[. . .

] marketing academics have little to say about critical strategic marketing issues andemerging issues, such as the impact of networked organizations, the impact and marketing of emerging technologies, [. . .], unethical marketing practices, [. . .] the role of marketing whencustomers are empowered.

Their answer was to urge for greater relevance, and to suggest the need tofundamentally rethink marketing education. These concerns are real and important butthe answer is not to be found in a rethinking of marketing education – it lies in arethinking of the limits to marketing.

What went wrong? An answer to this question can be found by going back nearly100 years to when the discipline of marketing as it is today had its origins. Retracing thesteps that led to the present makes somewhat clearer the reasons why marketing findsitself in its present position. A more rewarding answer can be found by going back again,this time for some 250 years, and revisiting the intellectual origins of marketing as adiscipline. Hidden way back there is a largely forgotten idea which when fully developedcould lead to a fresh approach to marketing, both as a social science and as a managementdiscipline. Rethinking the foundations of marketing in this way will build on the strengthsof contemporary marketing. At the same time, it will expand our understanding to thepoint where discipline-based answers can be provided to the many challenges that lieahead – challenges where marketing insights now are conspicuously absent.

Revisiting the past – a look back over 100 yearsGoing back some 100 years or so brings us to the time when marketing graduallyemerged as a specific area of study in college and university education, primarily in

America, but also in other industrializing nations in Europe and Asia. This was a periodin America when a major transformation of the economy was under way – the Westernstates were rapidly developing, railroads and canals linked them with markets in theEastern states, the telegraph opened new horizons in communication, and the boom andbusts of the 1890s were but a recent memory. The economic and cultural climate of thetimes supported education in a new field, one which came to be called marketing.

The courses taught at the time were largely concerned with distribution, appropriateregulation of the distributive industries, commercial credit, and then a little later with

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the principles of advertising, salesmanship, wholesaling, and retailing. (Bartels, 1962).These scattered commercial subjects were then brought together and taught as part of the new field of marketing. In the 1920s, marketing had moved on, then being seen as theformal study of transactions involving commodities and manufactured products, with a

focus on:. the specific requirements of differing commodities;

. the institutions needed to make effective distribution possible; and

. on the functions that had to be performed by these institutions if exchange wereto occur.

In the 1950s, in response to the far reaching economic and social changes taking placefollowing the end of Second World War, marketing thinking shifted significantly,focussing on the management of marketing within the business firm, and emphasisingthe central role of the customer in shapingthe nature of the offermade by such firms. Theshift in thinking was strikingly reflected in Dixon’s contrast of doctoral seminars at

Wharton in 1955-1956 and 1957-1958 (2010). The earlier seminar focussed on a debate asto whether marketing was art or science and considered the possibilities of theory andscience in marketing; although still concerned with insights from the social sciences, thelater seminar was dominated by a recent book by Alderson (1957, p. 353), Marketing Behavior and Executive Action, where, as Aldersonput it, “The culmination of marketingtheory is in demonstrating its value as perspective for marketing practice”. While in thefirst seminar “marketing came to be viewed in terms of systems, including firms,marketing channels, national and international economies, all of which interacted with avariety of social institutions” (Dixon, 2010), in the second, as Alderson (1957, p. 23) put it,marketing was only “a vantage point from which to understand business policy”.

A little later in the early 1960s the managerial focus in marketing became widelyaccepted. The idea of an offer, defined in terms of the 4 P’s taxonomy, made by a firm to atarget market, was suggested by McCarthy (1960), and a little later, by Kotler (1967).Not surprisingly, this reorientation led to rapid, far reaching change in both managerialand professional practice, and in academic research and teaching.

It was not long before questions were being asked about both what was included, andwhat excluded, in this reorientation of marketing. Was marketing best thought of simplyas a business technology, addressing normative issues of concern to decision makers, ordid it have a significant positive role as a social science focussed on transactions? Werenon-business organizations such as the churches, charities, and governmentinstrumentalities included? Should marketing performance be judged simply oncorporate returns or should attention also be paid to the societal impacts of marketingchoices? Could the logic of marketing be applied to the challenges of social marketing

such as public health campaigns and army recruiting? Did marketing have something tosay about all transactions or just those which involved the voluntary exchange of economic value?

In parallel, with these and similar questions, concerns were also being raised aboutthe predominantly micro orientation of marketing thought. As Layton and Grossbart(2006, p. 195) note, looking back to the 1970s:

[. . .] in the USA there was a growing concern as to the impacts of business decisions on societyand the environment. Protest was again in the air, driven by the Nader inspired concerns with

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product safety and corporate power, by deep seated worries about human rights, by theenvironmental messages inspired by Rachel Carson’s work, by Vietnam, and by the manyother forces – economic, social and technological – that were transforming America.Micro-marketing and its impacts were a driving force in many of these changes and challenges.

In an attempt to bring order to the range of options under debate, Hunt (1977) suggestedthat the study of marketing could be classified into eight cells created by the interactionof the three dichotomies – positive or normative, micro or macro, and profit ornon-profit. Although Hunt’s proposed taxonomy gained widespread support, it did littleto inhibit the growing fragmentation of the discipline. By far, the majority of publishedresearch studies fell into the micro cells of the taxonomy matrix and, perhaps inevitably,significant sub-disciplines began to emerge. Kotler and Levy (1969, p. 10) broadened theapplication of marketing management to include “the marketing of organizations,persons and ideas” thereby reaching out to non-profit and social marketing contexts.The need to separate service marketing from product marketing was highlighted byShostack (1977); a recognition of the importance of the service encounter contributed to

the growth of relationship marketing; consumer and, more generally, customer researchemerged as a major field of study Communication studies, especially those concernedwith advertising decisions, took on increasing importance and research intosub-disciplines such as the study of distribution channels, product development,pricing, and many other aspects of marketing decisions grew rapidly, generating newspecialised journals and conferences.

Towards the end of the 1990s, symptoms began to emerge of a discontent with thisstate of affairs. Change was yet again in the air. Schwartz (2003) pointed to thedemographics of aging Western societies and to the flood of children in the developingworld, to the breakthroughs in science and technology that might underpin a longeconomic boom, to the uncertainties of ethnic and other disorders, to the shifts in globaleconomic and political power, to the challenges of a sustainable environment. Day and

Montgomery (1999) noted the impacts that wide-ranging trends such as these were likelyto have on industries, markets, firms, managers, and customers. In the midst of all thischange, marketing seemed to have lost its way. Simplistic frameworks such as the 4 P’sseemed largely irrelevant in providing the logical foundations needed for relevance in anincreasingly complex and connected world. The important questions seemed to dealwith issues that did not fit easily into the fragmented or specialised fields nowcharacterising marketing, this leaving gaps that invited scholars from nearbydisciplines to explore. Faced with growing intellectual competition, marketing scholars,teachers, and practitioners were “struggling to distinguish marketing from other fieldsand functional areas” (Day and Montgomery, 1999, p. 3), a struggle raising awkwardquestions as to just what was the unique contribution made by marketing as a disciplineand what did it contribute to short and/or long-term corporate profitability.

In their introduction to a book of essays entitled Does Marketing Need Reform,Sheth and Sisodia (2006, p. 3) suggest that “it has been evident for many years that‘marketing as usual’ is simply not working anymore and that fundamentally newthinking is needed.” They went on to note that “power in the marketplace – economic,informational, and psychological – has shifted to consumers.” (p. 4). In a concludingchapter, they point out that “the world has changed a great deal in the past two decadesbut marketers have adapted to it in only superficial ways.” After noting the challenges toconventional wisdom arising from forces such as the rapid rise of emerging economies


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such as China and India, their access to “cutting edge information tools”, and thematuring of the major Western markets, they go on to conclude “marketers have tochange a great deal to adjust to this new world order” (p. 332).

By 2010, rapidly changing circumstances had once again confronted marketing

scholars with the need to rethink the logical structure and boundaries to the discipline,and to recreate an underlying consensus or worldview shared by scholars andpractitioners that could provide common ground for the development of marketing bothas a managerial discipline and as a social science, informing managers and guidingpolicy in an increasingly complex, dynamic and uncertain world.

A fresh start – scale and diversity in marketing thoughtGoing back in history a little further, to a period in the late eighteenth century, one findsthe English philosopher, Adam Smith, exploring the impacts of impendingindustrialization on society at that time. His insights into the origin of wealthre-invigorated economics and this in turn led to the development of managerial

marketing as we know it today. These developments however built on only part of thestory that Adam Smith wanted to tell – and it is in this missing half that can be found thebasis for an expanded future for marketing.

His starting point was the observation that:

The greatest improvement in the productive powers of labor, and the greater part of the skill,dexterity and judgement with which it is anywhere directed, or applied, seem to have been theeffects of the division of labor (Smith, 1776, Vol. 1, p. 2).

He saw clearly that specialization was the key to wealth, greatly increasing theproductivity of the workforce, thereby lowering costs and creating tradeable surplus.The benefits from specialization, however, and in particular the usefulness of the surplusthus created, required people to be willing to “truck, barter and exchange” in order to

satisfy their needs for a diversity of goods and services. It was also true that the divisionof labor was limited by the extent of the market. The larger the market, the greater thepotentialbenefits of specialization. Smith (1776, Vol. 2, p. 95) goes on to point out that it isfree and open competition, “the rivalship of competitors who are all endeavouring to

jostle one another out of employment,” that leads prices to gravitate to a natural price forevery commodity. This process is one where each individual is “led by an invisible handto promote an end which was no part of his intention” (Smith, 1776, Vol. 3, p. 117).

It was his ideas on the allocation or distribution of wealth through the operation of theinvisible hand that attracted most interest. Who gets what is determined by theinteraction of supply and demand in a market for a specific product, with price emergingas a competitive equilibrium is reached. Market participants were assumed to be fullyinformed, equally endowed with necessary resources, equally adept in reaching

appropriate decisions.When marketing was beginning to find its academic feet 100 years ago, these ideas had

an immediate appeal. The markets for commodities or products that were occupying theminds of economists were the markets with which this newdiscipline was concerned. Whilemarketing was focussed on the practicalities of managing in these increasingly complexmarkets, microeconomics was pushing back the boundaries, exploring analytically theconsequences of relaxing key assumptions. From this starting point, both marketing andmicroeconomics shared a common interest in the concept of a market – or in other words

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a product or closely related group of products, regarding which it made sense to think of sellers and buyers interacting to generate price and quality outcomes satisfying customerneeds. As marketing matured into a management science, this led to a sophisticatedunderstanding both of the decision processes open to managers and to customers, and of

the market settings in which they were active. It was central to theories of competition andof resource advantage, and it underpinned the concept of industry.

While all this made sense, it missed the other half of the point that Adam Smith wasmaking. With specialisation comes an increasing diversity of the goods and services thatare traded. The challenges faced today in rethinking the nature and role of marketing forthe next 100 years can find an answer in the ideas that flow from a reconstruction of this“missing half”.

That “missing half” is to be found in a study of the diversity seen everywhere incontemporary markets. As Stuart Kauffman (2000, p. 212) noted, it is:

[. . .] one of the most striking facts about current economic theory is that it has no account of this persistent secular explosion of diversity of goods, services and ways of making a living.

This time the starting point is the proposition that if producers chose to specialize, thenthey must buy from someone else the goods and services they no longer have time tomake or perform. As the division of labour and specialization begin to spread in acommunity, more and more goods and services have to be traded. Producers in their roleas consumers seek to acquire a mix of goodsand services that matches their needs, fillingthe gaps left as they move from self-sufficiency to specialization. Consumers in their roleas producers will seek to put together product/service combinations that can be tradedfor the things they need. As producers, they will build on distinctive capabilities toprovide goods or services that capture competitive advantage, thus responding to theopportunities created by a diversity of consumer needs. Both producers and consumerswill exist in a world of less than full information, of heterogeneous preferences, and of

substantial differences in both endowed and acquired capabilities. Arguably, both scaleand diversity are inseparable consequences of trade and thus inseparable elements inreaching a full understanding of marketing.

The logic of diversityWhat then happens as the number and extent of traded goods and services begins toincrease? Self-interest will lead producer/traders to increase specialized production inorder to reap the benefits of scale. In much the same way, self-interest will lead the sameproducer/traders to look for ways of reducing transaction costs, of becoming betterinformed as to what is on offer, and of identifying unmet customer needs that couldprovide opportunities for growth and profit, perhaps exploiting possible economies of scope. As trade increases both in volume and diversity, patterns emerge in the trade

relationships between sellers and buyers. These patterns are called marketing systemsand they are a direct consequence of the diversity of products being exchanged, and of the variety of skills, capabilities, and preferences found amongst sellers and buyers.

Recently, marketing systems are to be found everywhere – from primitive tribalsocieties to advanced Western economies. They can take many forms, from simple barterwithin and between small groups, to the trading networks linking Asia and WesternEurope over a millennium ago, to the complex networks of small and large enterpriselinked in the creation and delivery of the goods, services, experiences, and ideas that


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underpin contemporary society. They range from a single act of exchange involving aseller and buyer, to complex interactions involving multiple sellers, many buyers and anever widening range of traded objects. They include value chains and service systems,peasant markets and shopping malls, artisans and business ecosystems, networks for

private gain and for social benefit. In each case, acts of voluntary economic exchangedefine the core of a marketing system. While each of these examples and those like themcanbe studied from many pointsof view,it is the voluntary economic exchange of single ormultiple goods, services, experiences, and ideas that is central to the concept of amarketing system.

Diversity in trade, then, is what leads directly to the concept of a marketing system. Itis in a deeper understanding of the functions, structure and evolution of marketingsystems that will be found the ideas and insights needed to complement the distinctivecontributions of managerial marketing.

It is obvious that marketing systems differ widely in both scale and diversity. But arethere some commonalities that could be used in thinking about a theory of marketingsystems? One approach is to watch what happens as trade patterns develop in a widerange of human communities. When doing so, it is possible to draw on social disciplineslike anthropology and history; to look to geography or sociology for other insights; andto economics for an understanding of the underlying incentives.

Drawing on these disciplines, four broad patterns in marketing systems can beidentified. The first, and perhaps the simplest and earliest, is called autarchic. This typeof system is found in many developing communities where individuals or householdsare largely self-sufficient, often poorly informed, and it includes barter, sharing orreciprocity within and between households within a community. While the obviousexamples of autarchy are to be found among foraging or subsistence societies, it is alsopossible that disaster, whether due to earthquake, tsunami, war, or disease, may reduce amore sophisticated marketing system to something close to autarchy.

Over time, as producers, traders, and buyers interact in the pursuit of theirself-interest, the autarchic market pattern drifts towards a more structured form, atwhich point a marketing system becomes emergent. Informal understandings betweensellers and buyers deepen and take shape forming a social contract that allows trade totake place between buyers and sellers who may not even know each other. An acceptablemedium of exchange is identified and measurements standardized, all this leading tocoherent price structures. With the formalization of these basic elements, repetitivetrading links are established and transitory marketplaces become fixed with increasingtrade volumes. Hawkers, street vendors, and other mobile traders grow in importanceand regional markets emerge. Trade within and between communities grows and therange of goods and services available and on offer both widens and deepens.

An important phase is initiated when groups of traders form into firms, associations

or networks to reduce costs and exploit increasing returns. When product differentiationand local brands take root, specialist markets develop and specialist roles such as thoseassociated with retailing, wholesaling, brokers or agents, information sources, andenforcement emerge. Where and when some or all of these patterns can be identified, themarketing system can be called emergent.

With the development of firms, associations or networks, and the growing acquisitionof power and influence within these systems, emergent marketing systems begin atransition to structured or purposeful systems. Structured marketing systems typically

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comprise many corporate entities, each of which in isolation could itself be considered apurposeful or a structured system. These may range in size from small to very large, andinclude single firms, as well as alliances or networks of firms cooperating in production,distribution, or innovation. Structured marketing systems include shopping malls,

agricultural or industrial cooperatives, regional clusters, stock exchanges, and globaltrade relationships.

In a purposeful marketing system, the distinguishing characteristic is the use of economic or political power to direct flows of transactions in ways that contribute to thegoals of the entity exercising power. Most vertically integrated marketing systems fallinto this group. Somewhere between purposeful and structured marketing systems,depending on the degree of centralized control, are business ecosystems, typicallycomprising of a large number of loosely connected participants, often individuallypurposeful, acting as a community, each relying for mutual effectiveness and survivalon other entities through a complex web of interdependencies. Examples of purposefulmarketing systems include WalMart, the major oil companies, Microsoft, and manystate-owned enterprises.

The structure, function, and evolution of each of these different marketing systemsare deeply influenced by two broad sets of factors. The first set of factors is institutionalin nature, generated both by the formal and informalrules, beliefs, and norms held by thecommunity within which the marketing system is located, and by the constraints andopportunities created by geography, history, and physical infrastructure such asdistance or isolation. Rules, beliefs, and norms find expression in social structure and/orhierarchy; in the powers, attitudes, and interests of rulers, government leaders,politicians, and officials; in attitudes towards innovation and entrepreneurship; in theexistence of a common language and effective communication channels; in respect forand access to property rights; and in the existence of a stable, efficient and (potentially)fair social contract. Geography, history, and physical infrastructure are reflected in ease

of access by sea, river or land; in heterogeneous resource endowments; and in thecumulative effects of past history. For themost part, factors such as these change slowly,establishing the “limits of the possible” (Braudel, 1979) in the growth and operation of marketing systems at all levels of aggregation. Although these are often thought of asstanding outside a marketing system, in the longer run, such institutional factors bothrespond to and are shaped by the evolution of the marketing systems they impact.

A second set of factors that shape the development path taken by a marketing systemlie in the changing physical, informational, and social technologies open to systemparticipants. These may change swiftly or abruptly and have far reaching consequences,consequences that include facilitating the evolution of new organizational forms,widening and deepening assortments offered and sought, linking markets otherwiseseparate, and changing perceptions of costs, time, and distance. As Mokyr (2002, p. 16)

points out, “economies are limited in what they can do by their useful knowledge”.The dynamics of marketing system, growth, adaptation, and evolution in response to

these two sets of factors shown depicted in Figure 1.This brief (and, admittedly, inadequate) overview suggests how a complementary

theoretical framework might be constructed, a framework for the study of marketing as asocial phenomena that is based on diversity as well as scale, and that goes some waytowards providing insights into the emergence and growth of increasingly complexmarketing systems. For both producers and consumers, the decision to trade involves


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much more than a single commodity. Consumers seek and acquire assortments thatmatch their needs, and producers will seek to put together product combinations thatbuild on accessing the distinctive competences needed to reap the benefits of specialization through increasing returns. In this world view, technology and the growth

of knowledge, as well as the emergence of supporting institutions, play essential roles inreducing or managing transaction and coordination costs, in facilitating the transactionsneeded for the system to function and in generating innovative responses to new sets of needs on the part of consumers as they become aware of the opportunities generated bynew knowledge.

Towards a theory of marketing systemsMarketing systems have their origin in the trade imperative, where individuals realisethat gains are possible through specialization. As specialization deepens, markets form,more people become involved, and trade networks linking communities and introducingcultural change and diversity develop. As these changes take place, marketing systemsemerge, grow, adapt, and evolve. They cooperate and compete, sometimes merging,sometimes collapsing. They are dynamic, rarely in equilibrium. They are multilevel,recursive in nature, with systems forming and reforming within systems, interactingwith systems at higher and lower levels of aggregation. They influence and areinfluenced by the institutional and knowledge environments in which they are active.They occupy the middle ground between individual buyer and seller decision processesand outcomes, and the aggregate marketing system (Cox et al., 1965; Wilkie and Moore,1999). The efficiency and effectiveness with which each individual marketing systemdoes what it does is a critical determinant of the quality of life in all societies.

The possibilities are shown in Figure 2.It will be evident that this concept of a marketing system goes much beyond the

traditional interest in channel structures, supply chains, logistics systems, and retailing

found in much of the marketing literature. Figure 2 shows systems which vary instructure and in the level of aggregation, with the latter split into three levels – micro,meso, and macro. In this grouping, the meso level is of special interest as it is here that theinterface between micro and macro exists (Liljenstrom and Svedin, 2005, p. 5). It is thelevel where a study of the marketing systems found will help us to understand betterhow micro and macro systems interact to produce the outcomes found in the real worldof markets. The conventional focus however is on systems in or near the boxat the bottom left of the figure, including single firm offers to a market, distributionchannels, supply chains, and vertical marketing systems.

Figure 1.Growth, emergence andevolution in marketingsystems

Autarchy Emergent

Source: Adapted from Layton (2009 a,b)

Structured

Purposeful

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Just what then is a marketing system? Adapting slightly previously published material,this author now defines it as follows (Layton, 2007, 2008):

A marketing system is:

.

a network of individuals, groups and/or entities;. embedded in a social matrix;

. linked directly or indirectly through sequential or shared participation ineconomic exchange;

. which jointly and/or collectively creates economic value with and for customers,through the offer of;

. assortments of products, services, experiences, and ideas; and

. that emerge in response to or anticipation of customer demand.

Drawing on the work of ecologists (Holling, 2001), economists (North, 1990), complexsystems theorists (Mitchell, 2009), and other social scientists (Fligstein, 2001), and

following the lead of Hunt (2000) and Vargo and Lusch (2004) it suggested that a theoryof marketing systems could be built around the following fundamental propositions:

P1. Economic exchange is always embedded in a marketing system.

This P1 establishes the first stage in a bridge linking micro with macro marketingphenomena. It asserts that economic exchange must always be studied in context,and that the appropriate contexts will always include one or more marketing systems.Decision makers participating in the exchange will be influenced in their choices both

Figure 2.Mapping marketing

systems

Micro Meso Macro

Autarchy,

Emergent

Structured

Purposeful

Exchange

barter, trade

Traderoutes,

silk road etc

VMS

Peasant

markets

Commodity

marketing systems

Industry

clusters

Business

ecosystemsSupply

chains

Malls

Ebay

Aalsmeer

flower auctionFranchise

systems

Intermediaries

facilitators Grand

bazaar

Business

networks

Centrally

planned

systems

Aggregate

marketing

system

Open

source

Farmers

markets

Single business

Source: Adapted from Layton (2009 a,b)

Channels

National tourism

Industry


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by the structure and functioning of the relevant marketing systems, and by theimmediate and more distant environments in which these marketing systems areoperating. This is the case for economic exchange wherever it is found – from exchangein hunter-gatherer communities to exchange in the virtual worlds found in the internet,

from a supermarket purchase to complex multi-party commodity transactions, from thehistoric world of the Greek agora to contemporary electronic hubs, and fromindividualistic Western communities to collectivist Asian societies.

Perhaps, most importantly in the context of this paper, this P1 points the way to anintegration of contemporary marketing theory and practice – which is focussed on thedecision processes of managers and customers and based on the economics of scale – with a theory of marketing systems based on the economics of diversity. Marketingtheory explores the choices open to decision makers operating within a marketingsystem, a marketing system which provides the context for managerial and consumerchoice. In this sense, the marketing theory based on scale is complemented by themarketing theory of diversity. Taken together, they provide an inclusive, interactiveview encompassing both decision and environment.

In contemporary marketing, management decisions and customer choices areinfluenced by both the immediate and more distant environment as seen by eachdecision maker; this proposition suggests that the relevant immediate environment isthat associated with a focal marketing system, which in turn influences and is influencedby the wider institutional and knowledge contexts. Environment is thus partiallyendogenous and partially exogenous in the formation of marketing choice. It is certainlynot just an external influence to be factored into a decision analysis.

A final observation to note at this point is that if it is one or more marketing systemswhich provide the environment shaping managerial decision then it is marketingsystems and not industries where competition and cooperation will occur and wherepower and influence will be exercised. Also, it is the properties of marketing systems

rather than the notion of industry that should shape strategy: P2. The primary function of a marketing system is to offer customers an

assortment consisting of a set of goods, services, experiences, and ideas.

A focus on the diversity found in exchange systems highlights the importance of “assortment”, the set of goods, services, experiences, and ideas offered by a marketingsystem in response to or anticipation of customer needs and interests. While marketingtheory and practice has been primarily concerned with the successful management of individual products or services, a theory based on diversity has the capacity to addanother significant dimension.

Diversity is experienced through the customer choices made from among theassortments offered, assortments made accessible by a marketing system.

These assortments can range from the goods and services offered by a supermarket,to the choice of shops to visit within a shopping center or market, to the service offer of amajor accounting practice, to the range of destinations offered to a tourist, to the rides ina theme park or the exhibits in a museum or art gallery. In each case, it is choice fromdiversity that is the defining theme.

Assortments at any point in the operation of a marketing system may be looked at interms of what is offered, what customers are seeking, what is in fact accessible topotential customers, and then what is actually acquired and accumulated. While it is

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obvious that each of these assortment concepts – offered and sought, accessible andacquired, and accumulated – are closely related, the links between each are not wellunderstood. Retailing studies have looked at customer responses to store assortments,and in particular at the composition of the resulting shopping baskets. Shopping centre

design has been concerned with the optimal mix or assortment of stores to include in acentre, and with the mix of service attributes to be offered. Product line policies havebeen explored in the marketing and strategic management literatures. Variety in globaltrade flowing from comparative advantage has been considered by economists and moregenerally by geographers. The need to move beyond one-dimensional analyses of product/service offers is now clear and that need is attracting growing attention.

In a multi-level marketing system, assortments or heterogeneous value sets willusually arise at many points and at each of the different levels. At a micro level, a seller’soffer will often include more than one product or service. It will on occasion bedifferentiated from that of another seller by a willingness to involve a buyer in theco-creation of value. At a meso level where micro level systems are aggregated intocomplex sequences of offers and acceptances, each contributing to an end-userassortment through the creation or co-creation of value, assortments arise whereversellers and buyers interact. For the community served by the meso level system, theassortment or heterogeneous value set of goods, services, experiences, and ideas offeredto ultimate customers is a direct indicator of the relative success or failure of the system.At a macro, economy-wide level the aggregate marketing system offers an even richerarray of goods, services, experiences, and ideas to ultimate customers. At each level, andat any point, failure to meet buyer needs in offered and accessible assortments willdirectly affect the effectiveness of the aggregate marketing system.

From a macro-systems perspective, the provision of choice raises some interestinglong-term questions. Is it possible for a marketing system to offer too much choice? Froma customer point of view, too much choice may complicate choice decision processes to a

stage point where some customers begin to look for simplicity. From a widersustainability point of view, it may become necessary to limit the choices generated byaggregate or macro marketing systems. Both kinds of change will impact the width anddepth of the assortments on offer and thus feed back into the demand for specific itemswithin these assortments. In a world where constraints may be limiting further growth,markets for quite different product groups may no longer be independent. In such aworld, a marketing-based theory of diversity may be essential in planning bothmanagerial and social policy:

P3. Changes in the assortments generated by a marketing system contributedirectly to changes in the quality of life of the customer communities.

For most buyers/customers within a marketing system, it is the ability of the system to

provide assortments that enable them to fulfil their varied needs and wants that willdetermine the perceived success or failure of that system. At the macro or aggregatelevel, the characteristics of the assortments offered, or not offered, will often beeconomically, socially, and politically important. Offering an assortment to a customercommunity makes choice a possibility; as Schwartz (2004, p. 3) points out,“choice is essential to autonomy, which is absolutely fundamental to well being.”Although he argues the freedom to choose in a marketplace setting is an importantcontribution to well-being, Schwartz also notes that too much choice may not be an


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unrestricted blessing. He identifies (p. 5) the options of voluntary constraint on freedomof choice, of making “good enough” decisions in place of optimal but time and resourceconsuming choices, and of the lowering of expectations as possible responses to the everincreasing assortment of goods, services, experiences, and ideas that are on offer in

many marketplaces.Not all change in assortments offered lead to positive impacts on quality of life.

Restricted access, however, may lead to reduced quality of life and social disruption.Examples include environmental catastrophes such as earthquakes or tsunamis; theeffects of wars, riots or terrorism; the possibility of economic collapse such as occurred inZimbabwe in 2007; or the imposition of political change favouring a centrally plannedeconomy and restricted consumer choice. In each case, the assortments offered andaccessible are much reduced in both width and depth, this leading to marked reductionsin the quality of life of the affected communities.

Assortments that provide access to drugs, alcohol, or pornography are often sociallyunacceptable and the marketing systems that generate these assortments consequentlyproscribed. Assortments that encourage obesity, unsustainable energy use, or whichmay distract a population from the pursuit of socially important ends may also bediscouraged.

In each of these examples, the assortments generated by marketing systems arehighly visible indicators of the nature of a society, its values and, its commitments.As such, over the years, many communities have sought to control or limit theassortments on offer, sometimes restricting access to markets, sometimes banningspecific categories (but often then creating black or underground markets for such goodsor services), sometimes using taxation to raise prices beyond those which some peoplecan pay, or perhaps through controls or regulations imposed on the marketing systemswhich have generated the assortments in question.

The contribution of assortments generated by a marketing system will usually be

positive but may be negative and is not likely to be uniform for each of the customergroups served by a marketing system. In particular, accessibility in space and time andby income level, especially the degree of accessibility by ethnic, aged, or disadvantagedcommunities, may become critical and politically sensitive concerns. This raisesimportant issues of distributive justice in the functioning of marketing systems at alllevels of aggregation:

P4. Marketing systems are influenced by and influence the immediate social matrixin which they operate and the institutional and knowledge environments inwhich they are embedded.

The important relationships are shown in Figure 3.The immediate social matrix shaping the exchanges characterizing a marketing

system is a distinctive product of the physical, social, and economic settings withinwhich the flows of exchange occur – the people involved and their roles, their trade andother ties, the medium of exchange, the nature and extent of the social contractunderpinning the exchange processes and similar factors. In the wider context shown inFigure 3 the factors driving growth at any level of a marketing system are to be foundin the degree of specialization and in the workings of the marketing system structuresand functions that emerge from the effects of role specialization and increasing scale anddiversity. These factors are also directly affected by the growth of knowledge, by

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increasing wealth, and by the institutional framework within which the system operates.Scientific advances, new technologies, and fresh insights into human behaviour provideboth the economic and the social or human capital needed to reframe marketing systemstructures and functions (Romer, 1986; Baumol, 2002), thus offering new dimensions tothe assortments generated by marketing systems.

The institutional and infrastructural environment (North, 1990) also plays an essentialpart in shaping the contexts within which marketing systems operate. Culture and moregenerally social institutions influence the beliefs, norms and regulatory environmentsimpacting a marketing system; these together with the physical infrastructure of acommunity – such as roads, railways, canals, and communication links – provide theinstitutional settings making it possible for the essential flows of ownership, possession,information, money, and risk to take place within a marketing system.

Not only is the growth, adaptation and evolution of a marketing system shaped by thesocial matrix and the environments in which it is embedded; it is also possible that theoperation of a marketing system may also influence each of these environmentalsettings. The desirability or otherwise of the outcomes generated by a marketing systemmay feed back to influence aspects of the social matrix. In the wider environmentalcontexts, the search for new knowledge may be driven in part by the desire of systemparticipants to innovate in order to meet potential market needs. A similar drive may befound in the urge to open up new markets and to establish new patterns of trade.The changing assortments on offer in local communities as a result of opening up traderoutes across the Mediterranean some 3,000 years ago and the passion for Chinoiserieexperienced by European markets 300 years ago, illustrate the ability of marketingsystems to change social and institutional settings.

Although it is at the macro level where the scale and diversity characterisingmarketing systems and their environments works to ensure the interdependence of environment and system (Wal Mart is a contemporary example where theinterdependence of local or regional politics and firm performance is an essentialfactor in managerial and social policy), this can occur as well in meso and micromarketing systems. New shopping centers, entertainment facilities, the emergence of industrial clusters or the establishment of a new, micro business in a community will allreact to and generate change in the local knowledge and institutional environments.

Figure 3.Marketing systems,

economic growth andwell-being

Specialization Exchange Growth,

well-being

Knowledge

(Romer)

Wealth

(Baumol)

Institutions

(North)

Culture

(Fligstein)

Externalities

sustainability

Attention

choice

Marketing

systems

Knowledge as capital

Institutions as context


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Marketing systems then have important externalities – impacts on environment, onsocial institutions, social life and well being, on politics and power, and on religious andother values. They are also shaped by the environments in which they operate:

P5. Marketing systems are complex, adaptive systems.Mitchell (2009, p. 12) has defined a complex (adaptive) system as:

[. . .] a system in which large networks of components with no central control and simple rulesof operation give rise to complex collective behaviour, sophisticated information processing,and adaptation via learning or evolution.

She went on to suggest an alternative definition, “a system which exhibits non-trivialemergent and self-organizing behavior” (p. 13). Both definitions encompass mostmarketing systems and point to system attributes that these marketing systems mightbe expected to display. The exceptions consist of those systems that are limited in thenumber of individuals or entities and/or the number of links between these entities.Examples might include small isolated self-sufficient peasant communities, or thosewhere reciprocative or redistributive trading patterns (Polanyi, 1957) are to be found. Asthe number of entities engaged in trade or the number of linkages between themincrease, Kauffman (1995) found that a point is reached where complex behaviourpatterns emerge. This “moment of complexity” (Taylor, 2001) marks an important butunexplored transition in the growth, adaptation, and evolution of marketing systems.

Where the transition has occurred, the characteristics of complex, adaptive systemscome into play. As such, marketing systems can be expected to show characteristics of non-linearity in key relationships, to generate emergent order, to be characterised bypath dependence over time and discontinuity, and to be loosely coupled, fallingdynamically somewhere between equilibrium and chaos, between anarchy and control.They are inherently dynamic and often unstable.

P6. The entities comprising a marketing system may themselves be marketingsystems.

This proposition relates to the level of aggregation of the system that is underconsideration. The simplest marketing system is one involving a single seller anda single buyer. Now extend this to include a set of similar sellers and a set or sets of buyers – participants engaging in exchange under conditions of perfect or, in practice,imperfect knowledge, where confidence, fairness, corruption, money illusion, andrumour all contribute to decisions. This is the micro marketing system most studied incontemporary microeconomics and in micro or managerial marketing. The transactionor flow of transactions takes place within a specified social matrix, and interest centreson the decision processes adopted and their outcomes accepted by both sellers and

buyers. Sellers may and often will be complex organisations, and often marketingsystems in their own right. Buyers may be individuals, households or organizations.The relationships that form between seller and buyer over time in a series of repeatedtransactions may be of central interest. In particular, the basis for exchange will often,if not always, be grounded in service, with value being co-created through theinteractions between seller and buyer.

At a slightly higher, or meso, level of aggregation, a marketing system may formaround groups or clusters of sellers (firms) offering similar or mutually supporting

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products/services to groups of buyers; or a number of firms may cooperate for examplein creating supply chains or global commodity chains; or sellers may congregate in amarket place, shopping strip or mall. Here, too, the participating entities may be micro ormeso level systems, competing or cooperating within the context of a system at a slightly

higher of aggregation.An understanding of meso level marketing systems will typically turn on an analysis

of the interactions between and among systems at higher and lower levels of aggregation, something that is a continuing challenge in many of the social sciences.Finally, there is a macro level of analysis, illustrated by the work of Wilkie and Moore(1999). When the marketing system is referred to, it is usually this level of analysis that isin mind:

P7. The effectiveness of a marketing system will be determined by its capacity toprovide accessible assortments in response to changing customer needs foreach of the customer groups it is intended to serve.

The ability of a marketing system to respond to changing customer needs depends on theflows of information within the system, the rigidity or flexibility of the decision processesadopted by key decision makers, and the ability of the system to implement the neededchanges. Systemic lags and leads in each of these areas will play important roles in thetimeliness of the response. In the longer run, these and similar factors will determine thesurvival or collapse of a marketing system. At a macro level, as Tainter (1988) has noted, acollapse of key marketing systems may induce the collapse of a complex society.

In the shorter term, accessibility is critical. Accessibility here reflects spatial, time,communication, affordability, and continuity considerations in the exchanges takingplace within the system as customer groups seek to satisfy individual and/or collectivegoals. If this is to be achieved, attention must be given both to the heterogeneity withineach element of the marketing system, and to the pattern of interactions, interactions

within the system, with higher, parallel and lower level systems, with the external socialmatrix, and with the wider institutional and knowledge environment:

P8. Persistent discrepancy in marketing systems is a driver of innovation andcontributes directly to economic growth.

Alderson (1965) pointed out that assortments at any point in a marketing system can bediscrepant. This happens when a significant number of customers look for something inan accessible assortment and do not find it, or reject what is available. Anticipating orresponding to perceptions of discrepancy is a hallmark of entrepreneurship and a driverof economic growth (Baumol, 2002). It was not always the case.

In a period beginning some 350 years ago in Britain, the “industrious revolution”(De Vries, 2008, p. x) initiated a new view of household economic behaviour “that became

increasingly influential, increasing simultaneously the supply of market-orientedproduction and the demand for a broad but not indiscriminate range of consumergoods.” In many respects, this period marked the starting point for the emergence,growth and evolution of the complex marketing systems, a process that has continuedapace to this day. It was a consumer dynamic that was driven by a need to experiencenovelty and change in everyday life, and by a desire to enrich existing patterns of life.The perception of gaps in the assortments of goods, services, experiences, and ideas anda growing sense that these gaps could be identified and, in part at least, satisfied was


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something that had not previously been experienced by the majority of consuminghouseholds. To be, sure the wealthy did have wide-ranging assortments of goods andservices available to them. The difference now was that this ability to choose wasbecoming available to the new working class in Britain, a marketing segment created by

revolutions in agriculture and in industry and underpinned by advances in technology,communication, and organization.

With continuing change in global and local economies, in culture and society, and intechnology, household consumption patterns also changed. This created persistentdiscrepancy in increasingly complex networks of marketing systems, thus generatingthe creative destruction and new product growth that characterizes contemporaryeconomies.

Marketing – the next 100 yearsHas marketing lost its way? As a social discipline and a marketing practice, it isconfronted with external challenges to its relevance in a world which is changing

quickly under the impacts of environmental pressures, globalization, dramatic shifts ineconomic power and growth possibilities. There are also increasing concerns aboutdistributive justice in the outcomes achieved by marketing, and worries that marketingmight overwhelm long-standing cultures and societies. Internally, marketing has itsown critics, concerned at the narrowness of much of marketing theory and research,worried by an inability to see the bigger picture that is emerging where marketingscholarship is being overtaken by inroads from cognate social sciences.

Looking back, the origins of this situation are to be found in the narrow managerial focusthat dominated marketing thought in the post war world of 50 years ago. The limitations of this approach were felt by many scholars and attempts made to broaden the focus fromeconomic exchange, to look for ways in which managerial insights could be applied toresolve social challenges in the form of social marketing, to explore macromarketing ideas

as complements to a managerial approach, and in some cases to establish alternativeschools of thought concentrating on consumer culture, marketinghistory, and quality of life.While allof these efforts have played an important role in the development of marketing, thedeeper answer is to be found in revisiting the work of Adam Smith. His analysis of Britishsociety in the early days of the industrial revolution, when he sought to understand theorigins of the wealth that was then being created, highlighted the importance of specialization and the division of labour. Specialization enabled producers to exploit thewealth creating potential of increasing returns to scale. It was this realization thatunderpinned the development of classical microeconomics and which in turn was central tothe development of managerial marketing. This is the economics or marketing of scale.

Specialization however had another consequence that has been largely overlooked andwhich holds the key to a much wider and more generalized understanding of marketing. If

producers chose to specialize, then they must buy fromsomeone else the goods and servicesthey no longer have time to make or perform. As the division of labour and specializationbegin to spread in a community, more and more goods and services have to be traded.Producers in their role as consumers seek to acquire a mix of goods and services thatmatches their needs,filling the gaps left as they move fromself-sufficiencyto specialization.Consumers in their role as producers will seek to put together product/service combinationsthat can be traded for the things they need. As producers, they will build on distinctivecapabilities to provide goods or services that capture competitive advantage, responding

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to the opportunities created by a diversity of consumer needs. This is the economics ormarketing of diversity. Scale and diversity are thus inseparable consequences of trade.

As the number and volume of traded goods and services increases, patterns begin toform in the flows of exchange. Markets develop and form increasingly complex

networks of exchange transactions. These emergent networks, here called marketingsystems, are central to an understanding of the logic of diversity. The concept of amarketing system includes the idea of a market for a specific product or group of products, but it goes much further to embrace the bazaars and souks of the Arab world,the shopping malls of the west, and the financial exchanges of the global community.At a primitive level, a marketing system might be thought of in terms of a singleseller-single buyer transaction, perhaps repeated over time. At a slightly higher level of aggregation, a marketing system might be formed around a single store or supermarket,or perhaps a group of such stores. Or it could be seen in the growth of an industrialcluster, in the emergence of business eco-systems, or in state-controlled commoditytrading structures. Any and all of these and many such networks have attributes incommon that serve as the basis for a theory of marketing systems.

Looking ahead to the developmentof marketing over thenext 100 years, it is this theory,a theory which hasits origins in thestudyof diversity in exchange, that holds the keyto theextension of marketing thought needed to respond to the challenges mentioned earlier. Inthis way, a viable restructuring of the field becomes possible, one that could open the doorto fresh thinking in each of the areas found so troubling. These include environmentalpressures, globalization, dramatic shifts in economic power, and growth possibilities,increasing concerns about distributive justice in the outcomes achieved by marketing, andworries that marketing might overwhelm long-standing cultures and societies.

The extension in mind also addresses directly the limitations of the managerialapproach to marketing in dealing with these and similar issues. Social marketing concernsmight often be better thought of in terms of the design of social marketing systems dealingwith macro issues such as the restructuring of health systems underway in America andelsewhere, the development of more effective food distribution systems, or the rebuildingof social networks dealing with poverty, disability, and isolation. Policy issues – rangingfrom gun control in America, to the control of drugs in many nations, to worries about thelogic of anti-trust or trade practices legislation at a time when marketing systems arechanging almost everyday – each have dimensions that tap into the performance of anunderlying network of multi-level marketing systems. The rapid changes in criticaltechnologies effecting communication, health, and privacy are driving marketing systemchange. These developments need to be understood in that context as well as many others.The paper began with the idea that marketing is concerned with the creation and deliveryof a standard of living. This is a noble aspiration that might now be able to be realised.Management, then, is not all there is in marketing!

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About the authorRoger A. Layton is Emeritus Professor in the School of Marketing, Australian School of Business, University of New South Wales (UNSW). He was appointed Foundation Professor of Marketing in UNSW in 1967. His publications have appeared in the Journal of Macromarketing ,

Journal of Marketing Research, and in other publications. He was awarded the Order of Australiafor his services to marketing and is an Honorary Citizen of Guangzhou in China, in recognition of his contributions to higher education in China. Roger A. Layton can be contacted at: [email protected]


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